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At the start of the year, The Economist Intelligence Unit predicted that Libya would grow faster than any other country in 2012 – although since the September killing of the US Ambassador in Benghazi, security fears are once again to the fore.

Nonetheless, what bodes particularly well in the long-term is the bounce-back of the oil sector and the speedy return of foreign oil companies. As HSBC notes, the industry “has made a much more rapid recovery than seemed imaginable at the height of the civil war”, with daily volumes almost back to pre-conflict levels. With oil prices high, and access to overseas assets now restored, “funding should be plentiful”.

On paper, Libya has everything going for it financially: it has no debt; foreign investments worth US$168 billion; and thanks to its oil riches, its six million mainly highly-educated inhabitants theoretically enjoy one of the highest per capita GDPs in Africa.

Still, after 42 years of dictatorship, there’s undeniably a bumpy road ahead. The country lacks established state institutions, and there are continued threats from longstanding tribal divides, militia groups and entrenched corruption (during the Gaddafi era, perhaps 98 per cent of the economy was in the public sector).

For foreign companies with interests in the country, “everything hinged on July’s election,” says Stephenson Harwood partner and Libya watcher, Paul Phillips. During the 18-month period of interim government, there was a sense of worry about ‘the creep of Islamic activism’. Hence the great relief for many when the centrist National Forces Alliance secured a decisive mandate, and Dr Mustafa Abushagur became Prime Minister in September, with a mandate to make long term commitments to projects. With extensive international business experience, and no links to the previous regime, Abushagur is widely viewed as the most qualified candidate for the job, and a unifying influence. He has a meaty US$57.2 billion budget to spend, with the largest portion allocated to reconstruction and development.

The great hope, as the Libyan British Business Council observes, is that the advance towards political and constitutional settlement will enable Libyans “to focus increasingly on their ambitions to grow a more...diversified economy, allowing a greater role for the private sector”. It’s a misconception that Libya has nothing but oil and gas, says Phillips. “It’s mineral rich with the longest coastline in Africa, so there’s massive potential for shipping, fishing and tourism – there are the most remarkable Roman ruins. Above all, Libyans are a resourceful people. The shift from public to private sector will suit them: they want to run their own businesses.” A central challenge for the new government will be “to balance the power between the commercial centre of Benghazi and the government seat at Tripoli”, he adds. “Under Gaddafi, Benghazi was always the poor second cousin and that will have to be addressed by the newly elected government to ensure there is no more talk of a Libya divided or federated into two states; an eastern state with Benghazi as its capital and a western state with Tripoli as its capital. The newly elected government will have to work hard to unite people.”

It will be interesting to see whether Libya continues Gaddafi’s African-centric focus. Either way, assuming that security problems are kept under control, the country’s positioning puts it in an excellent place to share in the rewards of what promises to be a major boom over coming decades.

So has Libya arrived at an economic summer? “We’re not there yet. There are a lot of opportunities for foreign companies in the reconstruction ahead, but it’ll take a couple of years before Libya grows out of its introspection phase,” says Phillips. “It’s only when ministers are appointed, portfolios decided, and budgets allocated – that we’ll see contracts awarded and projects started or restarted in earnest.” Nonetheless, he concludes: “There’s good reason for a lot of hope.”

Revolutions do not tend to promote business activity. And 18 months on from the Arab Spring, the region is once again rocked by unrest. Nonetheless, green economic shoots are beginning to appear in Egypt, Libya and Tunisia. All three countries have a very different story to tell – but all still face formidable challenges.

Egypt: Safety first

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Population: 85 million

GDP forecast growth: 2012: 2% 2013: 2.5%

(source: HSBC)

Before the revolution, Egypt was the most popular destination for private equity investments in the region – viewed by many investors as the only country with comparable heft to Saudi Arabia. It combined a thriving indigenous corporate history, with a long tradition of hosting multinationals with deep roots in every sector from energy and defence, to consumer goods, food and tech. Intel and Microsoft, for instance, created an Egyptian outsourcing industry employing 65,000 and generating US$ 1.1 billion in revenues annually.

But a combination of financial crisis and revolution has hit Egypt’s economy significantly. In real terms, it has stagnated since the fall of the Mubarak regime, and remains dogged by unemployment and inflation. Political uncertainty hasn’t helped. There are hopes that the election of the moderate Muslim Brotherhood candidate, Mohammed Mursi, as president will “open the way for a pick-up in economic activity”, notes HSBC. But he has to steer a tricky course between powerful factions: keeping the army onside, and religious extremists at bay, while persuading liberal elements that political Islam can successfully run the economy. It’s a tall order.

Despite all this, some investors seem bullish. After plunging 49 per cent in 2011, Egypt’s Case 30 index has posted a 30 per cent gain in the first half of 2012. And some maintain the outlook for long-term foreign direct investment is also good.

“You have quite a few listed companies that have very strong long-term fundamentals”, says Ahmed Fattouh of Globalist Capital Management. “Once you get through the period of uncertainty, the outlook for these businesses is very sound...The big question mark is whether there is going to be a push for nationalisation. I don’t think the state wants to own the assets itself. But the government will have to be very surgical about the sorts of remedies they take against corrupt business practices that were prevalent in Egypt.”

Some believe that Turkey may provide a template for sustainable economic growth in an Islamic democracy. But Kamal Shah, head of Stephenson Harwood’s Africa group believes that Egypt has “a very robust private sector, with a lot of multinationals looking to it for regional exposure” and it will bounce back.

“Egypt has to bounce back eventually, everyone understands that. But it will be some time before things settle down.”

Of course, some of the more gung-ho are thriving on the uncertainty: “We see Egypt as more favourable than before the revolution because the competition has backed off,” says Romen Mathieu of EuroMena II, a Beirut-based $100 million fund that has just invested in a chain of eye clinics. But the message for most from Egypt is clear: safety first.

Tunisia: It's good to talk

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Population: 10.7 million

GDP forecast growth: 2012: 3.5% 2013: 5%

(source HSBC)

Tunisia was the spark of the Arab Spring and – on many estimates – looks to be the first to be blossoming into summer. To some extent it has had a head-start. Unlike both Egypt and Libya, both somewhat in limbo during lengthy periods of interim government, it took Tunisia just nine months to achieve the transition from the authoritarian rule of Zine al-Abidine to democratic government.

The European Bank of Reconstruction & Development (EBRD), which plans to invest in Tunisia this year, observes that by Q1 2012 the crucial tourism industry was growing at 33 per cent; and foreign direct investment was up 29 per cent. Meanwhile, a survey conducted by the Tunisian-German Chamber of Industry and Commerce, found that nearly half of a sample of 139 German firms based in Tunisia plan to increase investments this year.

HSBC is less convinced about the current strength of Tunisia’s economy, arguing that its “heavy reliance on troubled Europe is weighing on growth” (more than 51 per cent of exports head in that direction) and that the drop in tourist earnings remains ‘sustained’. The real progress, the bank argues, has been political. Although the political transition is not yet complete, “We are struck by how far it has come and how solid its foundations appear to be”. The new constitution, president and government enjoy broad popular support and democratic legitimacy. Ultimately, that should pave the way for a return to more normal economic activity and a pick-up in investment.

Tunisia is already reaping the rewards of its commitment to democracy, under the moderate leadership of Hamadi Jebali of the Ennahda movement. What looks to be a developing special relationship with the US (“Tunisia is one of the oldest friends and allies of the United States and a model for the region,” says a senior US financial official) has already helped raise muchneeded funds: a US guaranteed government bond was issued in July, and Tunisia has also had a good dollop of cash from the government of Qatar.

Tunisia is “ripe with opportunity for investors”, says Elizabeth Littlefield, CEO of the US-government investment quango OPIC (Overseas Private Investment Corporation). She sees particular opportunities in tourism, franchising and ICT: noting that Tunisia already has one of the most sophisticated telecom networks in North Africa, with a 3G mobile network covering 95 per cent of the population; and higher-than-average rates of internet usage. Open for business and calm, it is strategically located to serve as a regional hub and a platform for commercial engagement with neighbouring countries.

Not everyone’s completely persuaded about this apparent oasis of calm. “Visit Tunisia, and you still experience a sense of uncertainty,” wrote the Reuters correspondent, Anya Shiffrin in July. And there’s an ongoing debate about ‘how to have a democracy in a place where the word means something different for everyone’. But that, in itself, is no bad thing, surely the willingness to debate and discuss is encouraging.

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